Like crossing a tempestuous Atlantic on a rowboat. That’s a great analogy for hardware-oriented product managers today who are facing revenue headwinds! With the tech industry continuing to evolve at mind-bending pace, products continue to be commoditized to razor-thin margins. In many companies, the transition to services and as a Service (aaS) business models has become a do-or-die imperative with direct oversight from the C-suite.
Having been through this journey, from managing products to services and now building products as a service (aaS), here are some lessons I learned from navigating these waters.
Knowing the destination – strategic considerations
Ask any tech industry product manager today about their top-of-mind strategic imperatives and you are bound to hear these:
- Transition from hardware to software and services delivery
- Move from a shrink-wrapped HW/SW business model to an annualized recurring revenue (ARR) model
- Shift away from centralized architectures to distributed architectures, allowing as much on-the-edge intelligence as possible for ease of scale
Let’s look at what this transition entails.
Oar to the water — different strokes for products, services and aaS
Traditional product management
When I was a product management lead, my goal was to maximize product adoption and migration, cover our development costs, and reduce maintenance overhead. We designed the minimum viable product to grow our revenues (i.e., defining the colloquial speeds and feeds) while crafting a stellar UI / UX. We typically delivered a mix of new, expansion and sustainability-related features, using channel partners to scale the product and extend our reach. For show-and-tell with customers, we used PowerPoint and brochures.
Success metrics for our traditional product management practice included the typical measures – market share, average selling price (ASP), average discount, gross margin, and operating margin.
To assess quality, we tracked the number of defects, the number of support calls, the defect-to-product ratio, and mean time to deliver support for the product.
Services offer management
Service offer managers have no physical product to “touch”, no oar to manufacture. We seek to ensure outcomes for customers to grow the customer base, increase renewals, generate up-sell opportunities, and enable operational efficiencies by scaling the practice. We work with the managed services delivery team, for example, to craft customer service-level agreements (SLAs), define performance metrics, and enable customer self service capabilities so they can customize their experience such as reports or notifications. All are key aspects of a well-designed and well-delivered service. Beyond just slides, service selling requires consultative selling enabled by tools such as Outcome Chains to demonstrate service delivery strengths to customers. And as current capabilities become table stakes, we up the ante with new classes of services. Whereas ten years ago, 24×7 monitoring was a novelty, AI-powered predictive analytics takes that place today!
Channel partners are still important in the services arena, but value-added resellers (VARs) and/or integration partners gain in stature. These entities can incorporate your services into their solution and service products which are beyond your reach or authority to service.
Common success criteria in services include attach/renewal rates, quote-to-contract ratios, gross margin, and variable costs (AGM) vs. fixed costs (BGM). That last metric enables us to identify business trends and understand how scaling the practice could boost profitability.
With regard to quality, internal services KPIs include mean time to deliver, on time delivery and renewal/up-sell ratios, external KPIs reflected by the SLA, and risk budget usage. For more transactional services, utilization and revenue per resource are good measures, as are the percentage of on-time deliveries and changes in scope or schedule.
aaS Solution management
Today, my team of solution managers designs aaS subscriptions in addition to our services portfolio. In aaS, the deal-clincher is to draw out and storyboard the entire customer journey, from purchase to renewal to upsell and cross-sell. It is common for teams to use tools like Gainsight and UserIQ to map the journey as well as manage the customer engagement. We brainstorm how to deliver an extraordinary customer experience and a well-connected and consistently valuable journey. The objective is to optimize and instrument the technology and the processes to measure performance every step of the way. Key considerations include usability, customizability, user visibility to new versions of the product, and performance reporting. These impact platform level architecture decisions such as connectivity, computation power and storage. We think about how do we engage customers to use the subscription and make its benefits obvious to them? How do we show evidence that the subscription is in active use, generating the desired outcomes for the user or prompt action when it is not?
Scaling in aaS requires more integration partners who can make your apps a seamless part of their solution and broaden your reach. Think Amazon Web Services (AWS), other cloud providers, telecom carriers, or orchestrators like IBM and Mirantis. What ecosystem will you facilitate ? Who will you invite to participate?
In the aaS world, success measures include growth in subscriptions, software adoption (usage/utilization), churn, customer acquisition costs (CAC), and customer retention costs (CRC).
Ready all, row – practical considerations
Whether your product was born in the cloud or you are transitioning it to a hosted/cloud or subscription model, you will need to:
- Disaggregate the value of the hardware from the software
- Design the product to be self-serviceable, cloud-ready and modular
- Retool the commercial model for an ARR business model (ex., pricing, enforcement, management and monitoring)
- Lead the product framework, making sure you emphasize key architecture tenets (think along the lines of modular / micro-services, scalable, elastic)
So what key considerations do you have for this journey? What platform capabilities are you revamping? What key product features are you including in your MVP? How much customization vs. standardization are you driving in your services and aaS solutions?
A few last words for your journey
Remember Warren Buffett’s famous words: “Cash is king!” Don’t lose sight of cash flow, revenue recognition, and effective backlog management. Generating enough cash to invest in the technology is at the heart of any flourishing tech business.
I hope these insights are helpful as you make the move from product to services to aaS offer management. I would love to hear about your experience. How are you keeping keel as you row your product through the waters?
Originally published on September 27, 2018 on LinkedIn